GreeceWatch: Thursday deadline for haircut deal

So-called private sector bondholders have until tonight to sign on to a deal, dubbed the Private Sector Intiative [PSI], that will see the value of their holdings cut by nearly half. Then the Greek government will finalize the details tomorrow for presentation to the Troika.

Not all parties are eager to sign up for the deal the Troika has made the decisive ingredient in a package of measures that must happen before the second round of Greek “bailout” funds are released — money destined not for Greece but for its lenders.

There’s more on the plight of the nation, plus even more on those massive arms sales to the country by some of its biggest creditors, sales some in the Greek government say were preconditions for the approval of any bailout.

And there’s more. . .

Unions struggle with pension losses

One group of bondholders very much interested in the outcome of the haircut pact is Greek organized labor, and some unions aren’t willing to sign off on a deal that will mean dark futures for their members.

As Agence France-Presse reported yesterday:

Greece’s struggling pension funds faced a decision on Tuesday on participating in a huge state debt swap which unions say means disaster for the savings of millions of pensioners.

The Greek government has given holders of state debt until Thursday to decide whether to join the initiative, which aims to cut 107 billion euros ($142 billion) from Greece’s total 350-billion-euro debt mountain.

The civil servants’ union Adedy has scheduled a protest at its own pension fund, Teady, later on Tuesday.

“We call on fund boards to refrain from a new crime against their members,” the union said, terming the debt write-down “a coup de grace to fund reserves.”

Greek Finance Minister Evangelos Venizelos last month told parliament that pension funds hold 27 billion euros in state debt, and that these holdings were fully protected.

Actions by unions opposed to haircuts on their bond holdings are already underway today, as Ekathemerini reports from Athens:

Some 100 police officers gathered in front of the building housing their union on Veranzerou Street in the Omonia district of central Athens on Wednesday morning to protest plans for their pension fund to participate in a voluntary bond swap, which the union rejected on Tuesday.

Meanwhile, Greek prison guards announced that they would be staging rolling 24-hour strikes starting on Wednesday in reaction to over-crowding at the country’s correctional facilities and in demand of overtime pay for nigh-shift duty.

The prison guard strike is not expected to affect security, though visits and prisoner transfers will be put on hold for the duration of the stoppages.

In Thessaloniki, dozens of emergency medical technicians of the National First Aid Center (EKAB) staged a rally in front of the White Tower from 7.30-9.30 a.m. on Wednesday to protest the inclusion of their sector in a new nationwide civil service payroll scheme that will bring horizontal cuts to their salaries.

Their support is critical to reach the two-thirds of debt-holders the Greek government needs to impose the cuts on those who refuse to sign on.

From Ekathemerini:

Greece’s six biggest banks confirmed Tuesday that they would take part in the bond swap proposed by the government but several pension funds said they would not, despite the government preparing to offer holdouts worse terms than those who join the scheme.

Representatives of National Bank of Greece, Eurobank, Alpha, Piraeus, Hellenic Postbank and ATEbank met with Finance Minister Evangelos Venizelos to inform him that they would participate in the private sector involvement plan, or PSI, part of Greece’s new bailout.

The six banks hold roughly 40 billion of about 200 billion euros in bonds that are due for a face value haircut of 53.5 percent. Bondholders have until Wednesday night to declare whether they will take part in the restructuring.

Of the total privately held debt, 177 billion euros of bonds are written under Greek law. Greece is hoping that at least 66 percent of bonds, or 117 billion euros, will be put forward for a haircut. If this happens, Athens will be able to activate the collective action clauses (CACs) that allow it to impose the debt swap on the remaining bondholders. The Greek government believes the take-up rate will be between 75 and 80 percent.

Greece’s Public Debt Management Agency (PDMA) issued a statement Tuesday making it clear that Athens has no intention of honoring any bonds that are not volunteered for a haircut. “Greece’s economic program does not contemplate the availability of funds to make payments to private sector creditors that decline to participate in PSI,” it said.

“Final struggle at the barber’s door,” runs a headline in Greek daily Ta Nea, referring to the last ‘hair cut’ accorded to Greece, on a voluntary basis, by private creditors. “The plan must be finalised by Thursday night. Already, the country’s ‘major’ creditors are on board for the hair cut operation,” the paper says –

But Greek debt holders are still reluctant to agree to a 53.5% cut in the worth of their Greek bond holdings. […] For the moment, the banks, insurance companies and pension funds hold about €45 billion in bonds but that should change. The goal is to reach €154.4 billion. […] The government, in particular the Minister of Finance, Evangelos Venizelos, is confident that the operation will be successful. It hopes that creditor participation will reach 75% of the €206 billion in outstanding Greek bonds.

And, as the paper reports in a second story, others have raised concerns as well:

Investors must decide whether to agree to take a nominal 53.5 percent loss on their bonds as part of a bailout to plug holes in the country’s finances.

Greece wants 90 percent of debt holders to take up the offer, which would help to cancel more than 100bn euros of its debt. For the swap to go ahead a majority of investors need to respond, and of these, two-thirds need to accept.

But Germany’s state controlled development bank KfW is concerned that Greece will not get the backing it needs for the voluntary debt swap.

The bank, which holds Greek debt with a face value of 250m euros, fears that the participation rate will be well below this threshold.

“The concern is that we will miss even the 60 percent,” KfW chief executive Ulrich Schroeder in comments embargoed until Wednesday.

It’s not that they hold much Greek debt. What matters more is that the creditor is Germany’s largest newspaper.

From Agence France-Presse:

Germany’s biggest selling newspaper, Bild, said on Wednesday that it opposed a writedown of Greek debt, arguing the move will not help Athens get its finances in order in the long run.

“The Greek debt writedown is coming to private (small) investors. Also to Bild,” it said. “But we say ‘NO’.” Bild, which claims a 12-million-strong readership in Germany, said it had bought 10,000 euros ($13,100) worth of Greek sovereign bonds at a discount price of 4,815 euros in December 2011. But under an agreement between Athens and its major creditors, investors are being asked to take a writedown of at least 70 percent on their bond holdings in order to prevent a sovereign default.

In Bild’s case, the writedown — known as a “haircut” — means the value of its Greek bonds would be slashed to just 3,000 euros. So even taking into account the huge discount price it paid for the bonds, it would still represent a 38-percent loss on its holdings, the newspaper complained.

The most ominous story to surface lately comes from Andrew Rettman of Euobserver, who reports on allegations that the Greek government was pressured into buying large quantities of weaponry as a condition :

Official figures show that EU countries sold Greece over €1 billion of arms at the same time as negotiating its first bail-out back in 2010.

France was by far the biggest seller, with a €794 million aircraft deal, according to recently-released European Council data on arms licences granted by member states. It also sold €58 million of missiles and €19 million of electronics used for aircraft countermeasures and target acquisition.

Pro-austerity advocates the Netherlands and Germany together sold almost €90 million of mostly electronics and ground vehicles. Italy sold €52 million of rifles and aircraft parts, while Spain sold €33 million of military-grade chemicals.

Greece is currently trying to shave every possible centime off its budget, but it still remains one of the biggest arms spenders in the region due to a perceived threat from Turkey.

The then Greek deputy defence minister, Panos Beglitis, in 2010 told Reuters that fellow member states did not put pressure on Athens to buy the arms in order to get the bail-out. “This [large scale arms purchases] has always been the case with these countries. It is not because of the crisis, there is no link,” he said.

But an aide to the then Greek leader, George Papandreou, who asked to remain anonymous, told the news agency: “No one is saying ‘Buy our warships or we won’t bail you out.’ But the clear implication is that they will be more supportive if we do.”